by Ed Wijaranakula, NMS Investment Research
The WTI crude oil spot price tumbled 4.52% for the week to close on Friday at $44.19 per barrel, while the Brent crude price took a 4.26% nosedive to close at $46.06 per barrel, following a bearish report from the Energy Information Administration, or EIA, showing that U.S. demand for gasoline is weak, while OPEC and Russia continue to extend the bear market for crude oil. About 50% of total U.S. liquid fuels consumption is gasoline.
The weak U.S. economy could also start impacting high-end fast casual dining. That includes Starbucks, as the company reported on Thursday that its same-store sales for fiscal third-quarter 2016 rose only 4%, a steep slowdown from the 7% same-store sales growth delivered in the preceding quarter. Starbucks CEO Howard Schultz called the slowdown in the U.S. an "anomaly".
The EIA weekly U.S. oil inventory report on Wednesday showed a decline of 2.34 million barrels to 519.5 million barrels, excluding strategic inventories, in the week ending July 15, compared to S&P Global Platts analysts' expectations for a drawdown of 1.25 million barrels. The American Petroleum Institute, or API, inventory data on Tuesday showed a U.S. crude inventory draw of 2.3 million barrels for the week.
There was another large build last week in U.S. gasoline supplies of 900,000 barrels, while distillate stockpiles, including jet fuel, diesel fuel and heating oil, dropped 200,000 barrels, according to the EIA. Analysts were expecting the gasoline stocks to remain unchanged and a rise of 700,000 barrels for distillates.
Separately, the EIA said the weekly U.S. crude oil production decreased by 9,000 barrels per day (bpd) for the week ending July 15, 2016, to 8.494 million bpd. Weekly U.S. crude oil output has fallen about 11.61% from the peak level of 9.61 million bpd during the week ending June 6, 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count was up another 14 from the previous week, to 371, compared to 316, when the rig count hit the low on June 6.
There are still no discussions between OPEC and Russia about oil output after a failed attempt to jointly maintain production levels earlier this year. OPEC's monthly report stated that Saudi Arabia's crude oil production rose by 66,500 bpd, to 10.3 million bpd in June 2016, compared to the previous month, while Iran's crude oil production rose by 77,800 bpd, to 3.64 million bpd in June 2016, compared to May 2016. Iran almost doubled its exports since early 2016. Russia's crude oil production also rose to 10.8 million bpd in June 2016, compared to the previous month, according to the Russian Energy Ministry.
Technically, the WTI crude price broke down the $44.32 support, or the 50.0% Fibonacci retracement level, as demand remains soft. The next support is the $40.00 per barrel level, or 38.2% Fibonacci retracement. The EIA cut U.S. oil demand on July 12 to 160,000 bpd in 2016, compared with previous expectations for 220,000 bpd. If the $40.00 level can't hold, the next support is $34.67, or the 23.6% Fibonacci retracement level.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.